Levi Strauss Posts $25 Million 1Q Loss

Published 7:00 pm, Monday, March 24, 2003

Jeans maker Levi Strauss & Co. on Tuesday said it lost $24.5 million in the first quarter, reflecting a more severe sales slowdown than management anticipated.

The San Francisco-based company's loss for the three months ended Feb. 23, contrasted with a profit of $42.5 million in the same period a year ago.

Although it is privately held, Levi's discloses its quarterly financial results because some of its debt is publicly traded.

The first-quarter loss stemmed largely from a feeble holiday season and mounting consumer worries about war and terrorism that seemed to discourage consumers from shopping during much of February.

Levi's first-quarter sales totaled $875 million, a 6 percent decrease from $935 million last year. If not for favorable currency adjustments, Levi's said its first-quarter sales would have plunged by 11 percent.

"We said the first half of the year would be difficult, but the first quarter was even tougher than we predicted," said Phil Marineau, Levi's chief executive.

The decline followed consecutive quarters of higher sales for Levi's, which management heralded as a sign of better times for the long-slumping company.

Despite the rocky start to its fiscal 2003, Levi's executives predicted the company will rebound to increase its full-year sales by 2 percent to 5 percent, excluding currency fluctuations.

"We expect our business to improve substantially for the balance of the year," Marineau said during an interview Tuesday.

If Levi's realizes management's goals, the company will end a six-year sales slump. Marineau warned a prolonged war in Iraq could ruin Levi's comeback plans.

Levi's is counting on most of its growth to occur after the company's June introduction of a new discount jeans brand, called Signature, that will be sold in Wal-Mart.

As it teams up with the nation's largest retailer to sell cheaper jeans, Levi's will face two key challenges _ maintaining the sales of its more expensive pants and preserving its long-standing business ties with merchants that compete against Wal-Mart.

Very little went right for Levi's during its first quarter, which began just as the pivotal holiday shopping season began. Shipment delays caused by the West Coast port shutdown last fall contributed to Levi's lackluster holiday results, Marineau said.

The company's troubles continued with an "an absolutely disastrous" dropoff in customer traffic at shopping malls that began in late January and continued through most of February, Marineau said.

Retailers have blamed their February woes on government warnings about possible terrorist attacks, consumer anxiety about the Iraqi war and poor weather in many parts of the country.

Even a Levi's ad during the Jan. 25 telecast of the Super Bowl _ a 30-second spot promoting its new Type 1 jeans _ turned out to be a disappointment. "We weren't happy with the ad," said Marineau, who panned the spot for its lack of humor.

Levi's has gone back to the drawing board to come up with a new marketing approach for the Type 1 line.

Coming off the first-quarter letdown, Levi's sales through the first few weeks of March were running at roughly the same pace as last year, Marineau said.